LVS: A DETAILED CREDIT ANALYSIS

We’re not as concerned as most with LVS’s covenant situation for 2009. LVS will cross that hurdle but it will come at a price.

At the end of the 2Q09, LVS was in compliance with its US and Macau credit facility covenants, albeit with little cushion. As wrote about extensively in “LVS: CREDIT OPTIONS AND OUTCOMES” on February 24, 2009, the covenant levels step down in 3Q09 for both the US and the Macau credit facilities, and continue to step down further in 2010. This is why investors are concerned.

Macau Facility

We believe that LVS will be able to get an amendment in Macau, but at a price and with a “package of goodies” to the lender to boot. Given the low leverage on the Macau facility and the precedent of recent deals, we think that LVS should secure a fairly favorable deal. If only Sheldon could deliver on his promise to sell some non income producing assets, the cost would be limited. However, assets sales are unlikely in this market at the desired prices. An IPO cannot be floated until Q4 at the earliest but a definitive plan to IPO a minority stake in Macau would give the banks comfort and allow Sheldon still to restart construction on sites 5 & 6 in Macau. As we wrote about in “LVS: CHINA FORCING THE ISSUE”, Beijing may be twisting arms to get LVS the financing support it needs because they also want to see construction resume by year end.

In Macau, at the end of 2Q09, leverage stood at 3.8x versus a 4.0x covenant. There was $3.2BN of gross debt outstanding, and TTM EBITDA, for covenant compliance purposes, was $827MM. LVS paid down about $235MM of debt at the Macau subsidiary this quarter. As a reminder, the leverage test takes into account gross debt vs net debt in the US. At the end of the quarter, LVS had an EBITDA cushion of $35MM and a debt cushion of $138MM. Of course they also had $473MM of cash on hand at the Macau subsidiary, so real liquidity is closer to $600MM in Macau. In the 3Q09, the maximum leverage covenant steps down to 3.5x, which means that at $3.17BN of debt, LVS must have TTM EBITDA of $906MM to “clear” the covenant. We estimate that the TTM EBITDA will be $847MM, presenting a $60MM EBITDA problem for LVS. Alternatively, LVS can repay $210MM of debt in Macau, which they can do given the cash on hand. This may buy LVS some time, but the maximum permitted covenant steps down again in 2010 to 3.0x, meaning that on $3BN of debt LVS needs to generate over $1BN of TTM EBITDA.

With no new properties opening and additional competition coming from SJM (see “OCEANUS TO SINK SANDS MACAU” published on June 28, 2009) and WYNN, we are very skeptical that cost cuts alone will grow EBITDA by 20%.

U.S. Facility

In the US, leverage was 6.8x versus a 7.0x covenant (net debt was $3.1BN and TTM EBITDA was $452MM). At the end of the quarter, LVS had a $16MM EBITDA cushion and $110MM debt cushion against its covenant. Next quarter, the maximum permitted leverage covenant steps down to 6.5x. In 2010, the covenant steps down to 5.5x and continues to step down to 5.0x in 2011 through maturity. There’s no question that when the agreement was originally crafted, Sheldon was relying on his “unique fundamental business plan by selling off our retail and our apartments and reducing or eliminating all our debt.” Unfortunately, for Sheldon and other real estate investors, that game of arbitrage worked well until the music stopped and suddenly there were no more buyers at “exaggerated prices”... leaving developers holding the bag.

To that end, we’re projecting TTM EBITDA improving to $490MM (as a reminder, Vegas suffered from very bad hold in 3Q08 and there will be pro-forma treatment for Bethlehem) and net debt of $3.3BN at the US subsidiary level, amounting to leverage of 6.7x versus a 6.5x covenant.

Since the breach is small, Sheldon could cure it by repurchasing up to $800MM LVS’s US bank debt. However, this strategy was significantly deleveraging when LVS’s bank debt was trading at 50% discount to par. Now that the credit markets have rallied, this strategy will be much less impactful with bank debt trading at 80 cents on the dollar.

We noticed that LVS pulled back (“deferred”) on capital expenditures this quarter, which should have been ramping into the opening of Singapore. If LVS plans to open Singapore on time, capex will need to ramp up and use some of the $2.6BN of cash that they are currently sitting on. 2010 is the year we are more concerned as the covenant issue gets worse 2010 with the step down. It will be tough to grow EBITDA with all the new high end product coming to Vegas next year (see “PLENTY OF ROOMS AVAILABLE AT THE STRIP INN IN 2010” published on July 17, 2009).

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07/31/09 12:26 PM EDT

Chart Of The Day, Month, and Year: Burning The Buck

Andrew Barber and I aren’t smart enough to ignore the simple reality of this chart, so we’ll keep flashing it to you when it makes lower-lows.

Today the US Dollar is down another full -1.3% (yes, for the said world reserve currency that’s a big one-day move!). The buck is making another run at breaking down through the critical level of $78.11 support. Since March, the USD dollar has lost over 12% of its value and the US stock market (priced in Dollars) has reflated to the tune of +48%! As the US Dollar makes new YTD lows, the US stock market is testing new YTD highs.

As Bernanke stares in the rear-view and his stacks of books about the 1930’s, everyone who is looking forward is starting to understand the compromise of America’s conflicts. If America’s financial system is based on an outlook of a man who missed both the crash and the recovery, why trust her currency right here and now?

Below we have refreshed and outlined our quantitative view of the US Dollar. On all three durations (TRADE, TREND, and TAIL), there is one conclusion – the Buck Is Burning. I don’t know what else to say, so I’ll stop writing here.

Keith R. McCulloughChief Executive Officer

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07/31/09 11:02 AM EDT

PSS: WMT The Share Donor

Here’s another theme with meaningful impact on the footwear space, which I think helps Payless over the next two years. Wal*Mart has covertly indicated over the past month that it is increasingly downsizing its presence in the footwear space to concentrate on more profitable offerings.

Here’s the math… Wal*Mart did $306bn in the US last year. About 11% of that was apparel, footwear, and accessories. Only about 100bps-200bps was driven by footwear, which suggests about $5bn annually. For what it’s worth, Zappos generated $1bn in gross sales last year. Yes, Zappos is bigger than one might think.

But where Zappos and Wal*Mart don’t compare is on price point – where Zappos is over 2x the $9.98 average price at WMT. Who does compete? You guessed it…Payless. Check out the table below. It shows that a quarter of Payless stores have a Wal*Mart within a mile radius. 43% have a WMT within 5 miles.

Let’s say Wal*Mart scales down footwear to 1% of sales over 3 years as it cycles through its remodel process. That suggests over $2bn is up for grabs. If I take it a step further and assume that 38% is within reach (within a 3-mile radius), then that’s $760mm. If PSS grabs only 10% of that, it would be a 3% comp alone. At a 30% incremental margin, we’re talking $0.23 per share. That’s off a base of $1.06 last year.

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07/31/09 09:32 AM EDT

RETAIL FIRST LOOK: MINE, MINE, MINE

RETAIL FIRST LOOK: MINE, MINE, MINE

31 JULY 2009

TODAY’S CALL OUT

I highlighted yesterday that the key theme coming out of the WSA (show show) in Vegas today will be distribution – specifically AMZN/Zappos and the .com ramifications. The other theme will be sourcing, and who will benefit from import cost reduction. Even though I still think that the quantification of lower FOB (freight on board – the industry standard term for the total cost of an imported shoe) is misunderstood and underestimated, I think it’s safe to say that ‘lower costs out of China’ is the consensus call for the next couple quarters. The key question that everyone will be asking all the CEOs at WSA will be “who keeps the sourcing savings”? Most of them will say “we will.” But if the manufacturer in Asia thinks that they’ll keep it, the brand thinks it will keep it, the retailers thinks they’ll keep it, my sense is that the pie of expectations will add up to more than 100%. That’s the problem.

Let’s be clear about two things… 1) Industry executives DO NOT HAVE A CLUE as to how this will play out. If they claim to be keeping the margin, they are oblivious to any potential irrational action on the part of their supply chain partners and competitors. Very few have a proactive Macro process to drill down this issue. One of the earliest ones to do so was Payless, which (after the 2Q print) remains one of my top ideas over the next 12-18 months. They are doing what many others are not – in reverse engineering product in order to boost margin at a lower initial price point. 2) The consumer will decide who pockets any excess cost saves. The best content will win, as always.

But let’s consider a third point, which leads me to think that I almost don’t care who wins or loses. We’re seeing a 600bp swing in the spread between import costs and consumer prices. When you do the math, that gets me to about $0.40 per pair that get’s freed up in our system. Doesn’t sound like much? Multiply that by the 1.5bn pair of shoes sold in the US each year, and we’re looking at $600mm in incremental profit up for grabs. Yes, it will be a fight for that dollar amount, but keep in mind that since 2005 we’ve seen the net margin impact negative to the same magnitude.

This is meaningful, and makes it tough to be bearish on margins for any footwear company over the next year.

LEVINE’S LOW DOWN

Some Notable Call Outs

- For the second time this week we are hearing that trends on women’s fashion boots are strong, which bodes well for the fall and holiday selling seasons. Steve Madden and Nine West both cited strength in the boot category. With higher ASP’s, boots could ultimately be one of the standout products in back half of the year. Additionally, management cited they are actively looking at acquisitions to utilize their cash balance.

- On its conference call, Cabela’s management noted that sales of guns are beginning to slow. However, the slowing trend was anticipated and is within management’s expectation. Despite this, the firearms category drove most of the comp store sales growth in the quarter, accounting for 5.1% out of the total 6.1% comp.

- Benefitting from easy comparisons, lower year over year fuel prices, and industry capacity reductions (liquidations and closings), West Marine reported better than expected Q2 results. Additionally, categories aimed at the DIY boater are performing well. Management believes that with the initial shock of the recession now over, boaters are returning to the water but with a preference to maintain their boats themselves.

- In an effort to boost traffic for back to school, Payless is introducing product at an $8.99 price point for kids and $12.99 for women. On promotion, the women’s product will be out the door at $9.99. In order to maintain margins on this extremely low price point, the shoe was reverse engineered to meet a specific margin criteria. This may be one of the lowest price shoes we have ever seen marketed for back to school (inflation adjusted of course!).

MORNING NEWS

-AnnTaylor reports more job cuts and pre-announces - AnnTaylor Stores Corp. is eliminating another 160 jobs, primarily at the corporate office in Times Square, and closing 30 more stores, in the retailer’s latest round of cuts unveiled Thursday. The specialty retailer, challenged by the poor economy, product misses and executive turnover, started restructuring in January 2008. However, chief executive officer Kay Krill vowed that Thursday’s cuts conclude the downsizing. Two thirds of the 160 cuts are at corporate headquarters, and are occurring across almost all functions, including planning and allocation, information technology, human resources, finance and real estate. The corporate office has about 1,600 employees, and the total head count as of last January was 18,000. About one-third of the cuts are happening at divisions. The new cost structure is set up for profitability in the back part of the year. For the second quarter, ending Aug. 1, the company now expects EPS to be slightly better than breakeven due to cost savings and weak but better-than-expected sales. Comp-store sales dropped 28% in the first quarter and in the second quarter were down 20% to $470 million. Loft performed better in the second quarter than Ann Taylor. <wwd.com/business-news>

-Shoe designer Jeff Staple discusses new airwalk line at Payless - At a party Tuesday night to celebrate the Aug. 11 release of his nine-style collection with Airwalk, Staple told Insider that designing shoes for the brand to retail at Payless gave him the opportunity to think about design in a new way. “I’m very used to designing 100 shoes for one store in Manhattan. That’s easy,” Staple said. “[For the Airwalk collaboration], I had to think about what would work in Chicago, Denver, Los Angeles, for men and women — something that would resonate with all people.” Did the price constraints (no shoe in the collection goes above $50) add an extra challenge? Staple laughed. “Shoes in my market wholesale for more than $50,” he said. “I had to be educated on what materials would work.” Of course, that isn’t to say Staple has abandoned the niche genre entirely. In May, 110 specially designed Airwalk styles labeled with NCC-1701 (the Enterprise call number) were given to Reed Space and distributed to the cast and crew of J.J. Abram’s “Star Trek” film to celebrate the movie’s release. And this fall, to commemorate the DVD release, select Payless shops around the country will have the same silhouette — but this time, the mass version will use the three main colors (gold, blue and red) of the original uniforms instead of being done in burnished silver metallic (like the hull of the Enterprise). <wwd.com/footwear-news>

-Fine handbag and accessories brand Coach is developing a new luxury apparel label, called Reed Krakoff, after its executive creative director - The women's collection is expected to roll out fall 2010 and will include ready-to-wear, handbags, accessories, footwear and jewelry. "We believe that this concept will serve to define the new American luxury and engage a different customer," says Lew Frankfort, chairman and chief executive officer of Coach. <licensemag.com>

-UK Like-for-like fashion sales were down 4.9% for the week ended July 26 according to BDO High Street Sales Tracker - BDO Stoy Hayward said that it was the fifth consecutive week of falling fashion sales. It said that only a handful of specialist retailers had bucked the trend and that there were reports of low footfall at key shopping times during the week. Total like-for-like retail sales were down 2.2% over the week. <drapersonline.com>

-The UK High Street is having a difficult time as summer retail sales drop in three consecutive months - The only other sector to report growth was footwear & leather (a balance of +64%), which saw its strongest result since August 2007 (+70%), while falling sales were reported by retailers of hardware, china & DIY, and furniture & carpets. While sales continued to fall in the durable household goods sector, they dropped at a slower rate than the very heavy falls seen in the past year. However, the latest overall decline in retail sales was similar to the more moderate rates seen in May and June, and not as severe as the heavy falls seen between July 2008 and March 2009. Stocks remain adequate in relation to expected demand, but the volume of stocks lay below its long-run average for the third consecutive month. The volume of orders placed upon suppliers fell again, with a balance of 13% of retailers reporting a drop in July, and a balance of 17% foreseeing a decline in August. <fashionnetasia.com>

-Egyptian textile and clothing industry exports are falling - The Egyptian textile and clothing industry which has taken a vital role the country's economy is expected a decline this year due to the global economic downturn. Textile and clothing exports are seen falling by 5.3% in 2009 to US$2.169 billion, according to a new report from Business Monitor International (BMI). BMI expects the current global economic downturn will have an adverse effect on the industry, with sales and output set to decline this year and next. Overall Egyptian textile and clothing value added will drop by 9.3% in 2009, and again by 6.6% in 2010. Moderate recovery is expected to set in from 2011, with growth of 4.5%. <fashionnetasia.com>

-Colombia's textile and garment industry fears Venezuela will ban Colombian exports - Colombia's textile and garment industry has been worried about its neighbouring country Venezuela's probable implementation of import ban of goods from Colombia, one of its biggest buyers. The Venezuelan government had stopped providing dollars to Venezuelan importers of textile goods from Colombia at the official exchange rate due to which they have to buy them from the open market at a high rate. This is the second time in recent years that Venezuela has imposed such bans from Colombia. Venezuela is the one of the biggest importer of textiles and apparels from Colombia. <fashionnetasia.com>

-CNBC's Darren Rovell discusses the recession, golf, and Callaway - "As I sit here at CNBC, I hear more and more people say that the recession is over and there are definitely signs. The Dow, for example, is on track to have its best July –- on a percentage basis -– since 1939. But I haven’t really seen any talk of recovery in the sports business world, until today that was. The golf club business has pretty much been a disaster over the last year. Since shafts don’t fall apart, it’s a totally discretionary purchase. Callaway, which were among the most aggressive in partnering with retailers on economical deals, reported that its profits dropped 82 percent in the last quarter. Yet many were ready to focus on the upside. Some potential upside has been seen in an uptick in sales in July and emerging market potential in China and India. Like every sector, there are still many signs that we’re not out of the woods. Given the position the golf retail business was in (free club with this purchase! free club if this guy wins!) this is really the first great piece of news for the industry. Then again, maybe we should say then when we actually see sales going up instead of people projecting sales will be up." <cnbc.com>

-Hartmarx CEO steps down - It’s the end of an era for Hartmarx Corp., which is losing its chief executive officer and longtime employee Homi Patel just weeks after being purchased out of bankruptcy by Emerisque Brands. Patel, 60, who has worked for the men’s wear giant for more than 30 years, will step down as ceo today. “I have been extremely privileged to be the head of this wonderful company and its extremely talented and dedicated people,” Patel said of his tenure. “I am particularly proud that even in the most adverse of circumstances, our board and our employees conducted themselves with class and dignity, accomplishing our most important goals of maximizing the sale price while saving our brands and thousands of jobs.” Patel’s replacement was not immediately revealed, but it is widely expected to be Ajay Khaitan, the principal of Emerisque and a former ceo of denim brand Lee Cooper. <wwd.com/business-news>

-The ongoing economic crisis continues to bite into PPR’s business - The French luxury and retail group said sales slipped 3.6%. The group, which owns Gucci Group as well as French retail chains Conforama and Fnac, will continue to use “all available means” to adapt to an economic environment that remains uncertain. “We have launched initiatives aimed at reconfiguring our organizations and energizing our sales efforts over time,” chairman and chief executive François-Henri Pinault said in a statement. “These should begin to bear fruit in the second half of this year and continue into 2010.” <wwd.com/business-news>

-Despite a progressive improvement in the second quarter Bulgari SpA sees continued slow down in demand for watches and jewelry - Despite a progressive improvement in the second quarter and sales picking up at directly owned stores, Bulgari SpA was hit by poor sales in the U.S. and continued slow demand for watches and jewelry, reporting revenues down 21.7%. At constant exchange rates, sales would have dropped 28.9%. CEO Francesco Trapani said second-quarter results were an improvement over the first three months of the year and “particularly encouraging in terms of growing performance of the directly owned stores.” <wwd.com/business-news>

-Destination Maternity Corp. gets by with reductions - Reductions in inventories, expenses and markdowns helped Destination Maternity Corp. boost third-quarter profits by 64%. The company said it would exceed the high end of its earlier guidance for earnings per share of between 74 and 91 cents. Sales fell 6.4% and were down 5.5% on a same-store basis. “We have taken aggressive actions to manage our business in this tough environment, and with our tight management of expenditures and inventory, we were able to continue to reduce expenses and were able to control markdown levels versus last year, resulting in better-than-planned gross margin performance and lower-than-planned expenses,” said chief executive officer Ed Krell. <wwd.com/business-news>

RESEARCH EDGE PORTFOLIO: (Comments by Keith McCullough): PSS, WMT

07/30/2009 01:54 PM

SELLING PSS $16.11

The stock has had another nice run since we bought it and McGough's duration isn't owning this one for the quarter. KM

07/30/2009 10:12 AM

SELLING WMT $49.94

Free moneys will create y/y inflation in Q4. I'll continue to take down exposure to the US Consumer as we approach those dates. Sell high. KM

MACRO SECTOR VIEW AND TRADING CALL OUTS:

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07/31/09 08:24 AM EDT

THE MACAU METRO MONITOR

US TITANS POISED FOR REBOUNDdestination-macau.com

DM gives credit to LVS and WYNN following their second quarter earnings, although they are taking “the Las Vegas Sands Corp. bigwigs at their word that they are on track to cut nearly US$300 million in annualized costs out of their three Macau properties”. Net revenues are holding up and both organizations are much leaner than a year ago, when visa restrictions began. This means that both companies are well positioned when a rebound in the markets occurs, according to DM.

DM sees WYNN’s IPO as being the more appealing target for “smart money”. WYNN makes a lot more per visitor in Macau and it not sitting on nearly the same amount of debt. DM also believes that Sheldon Adelson’s claims on having great options with respect to asset sales, equity purchases by third parties, or IPOs to be “total BS”.

GALAXY KEEPS GROWING destination-macau.com

LUCKY RUN AND COST CUTS BOLSTER GALAXY EARNINGS scmp.com

EBITDA for the Galaxy Entertainment Group grew for the third straight quarter at HK$264 million, driven by cost cutting and a lucky run on the high-stakes baccarat tables. The StarWorld Hotel and Casino had EBITDA of HK$214 million, its fourth sequential quarterly increase. Win percentages in the second quarter certainly helped Galaxy, with RC volumes up 3.2%.

One weak area for Galaxy was the mass market, which entails walk-in cash play rather than high-stakes players brought in by VIP junket agents who typically play on credit. A sizeable portion of StarWorld’s main casino floor was closed for renovation from May and is set to reopen this weekend.

Galaxy continues to wait patiently on Cotai. The company has plenty of liquidity: HK$4.5 billion currently lines the Lui family’s pocket.

CARTEL FORMALLY ESTABLISHED destination-macau.com

The “Big Six” have formed an association with Stanley Ho as the first chairman. The Chamber of Macau Gaming Concessionaires and Sub-concessionaires has agreed that junket commissions should be capped at 1.25% and that the government should be worried about the rise of Singapore. Stanley Ho suggested that the ascension of Chui to the office of Chief Executive could mean the end of “so many favors for the Americans”.

How the junket commission cap will be enforced remains unknown. The new chief has said that he will take his time in examining the tax situation vs that in Singapore.

WYNN RESORTS BEATS SLUMP WITH US$73.7M PROFITscmp.com

Wynn Resorts’ cost cutting in Macau and Las Vegas preserved the firm's bottom line profit in the three months to June, successfully offsetting declining revenues in both cities. Mass market casino revenues have been hit by declining visitation numbers and the house played less lucky than previously against RC players.

The profit was still better than expected at US$73.66 million, down 28.6% from a record quarter a year earlier but up 6.1% from the first quarter. Companywide, Wynn reported net income of US$0.21 per share, down dramatically from US$2.45 per share a year ago but significantly better than expected.

A Bloomberg survey of 10 analysts had forecast a net loss of US$0.03 per share for the quarter.

MGM said it is overhauling operations and marketing in Macau in order to boost the company’s revenue after an “underwhelming” start. CEO Jim Murren believes that MGM’s Macau market share, being the smallest of any of the big six in Macau, is “half what it should be” and called for more aggression in marketing and building relationships with junkets.

MGM may also consider an IPO when earnings improve, Murren stated. MGM’s venture with Pansy Ho generated $17 million in EBITDA in the first quarter of 2009. MGM Grand had less than 9% of Macau Casino’s gross revenue in June, Portuguese news agency Lusa reported this month, citing data from operators. MGM are sending a “major contingent” of its “best operators and marketers” to assess Macau this month, Murren said.

QUOTE OF THE WEEK destination-macau.com

“The Motherland not only provides us with powerful backing, but also continuously injects dynamism into our development." This was part of a statement released by Chui Sai-on after his formal endorsement this week as Chief Executive-elect.

Dr. Chui takes office on December 20.

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07/31/09 08:15 AM EDT

LVS: DID I JUMP ON THE WRONG CALL?

Big mismatch between numbers and conference call propaganda. Aside from Macau cost cutting, the numbers were disappointing. In fairness, expectations probably got out of whack following the huge stock run.

The LVS results released after the close were disappointing. In fairness, the stock has been on a tear and whisper expectations had been ratcheted up. However, since Sheldon was out and about touting how strong results were for his properties and dressing his Macau operations for an IPO, LVS should’ve done better. At least we figured out the mystery of why WYNN scrambled to report its numbers first.

LVS's discussion of its options and strategy sounded completely unrealistic to us. I kept looking back at the numbers and double checking that I wasn’t dialled into the GXDX call by accident last night (our healthcare guy Tom Tobin nailed this one last night). I don’t think Sheldon pulled the wool over anyone’s eyes by proclaiming that he can actually sell his real estate assets. That story is a rerun of a rerun of a rerun. While the strategy of selling non-core assets worked when the real estate market was booming, we seriously doubt we will see any deals, particularly as Sheldon put it, at “exaggerated prices”. Repeating a lie over and over may work in the political spectrum, but not when it comes to the real estate market.

With the stock up here the trade has played out. Our intermediate and longer term concerns are now in focus. Those concerns do not include covenant issues, however. We still believe that Sheldon will get his amendment in Macau and resolve his credit issues in the US (See “LVS: CHINA FORCING THE ISSUE” from 7/17/09). That is still a potential positive catalyst since there is much doubt in the investment community. Rather, in our view the real issues are:

Revenues came in 21MM below our estimate and EBITDA was 19MM below our expectations. Our lofty expectations were based on the expected ramp of Palazzo and the relatively easy comps for Venetian, which was hit pretty hard in 2008 when Palazzo opened.

We’re not sure what Sheldon was referring to on the call when he spoke about how he’s holding rate and his properties are differentiated and therefore are faring better. RevPAR at Venetian was down 25%, led by 24% ADR decreases. However occupancy held up pretty well, so I suppose that’s what he meant when he said filling the rooms wasn’t an issue; it was simply a matter of rate. Room revenues were $5.6MM light of our estimate due to the lower ADR.

We were also confused when LVS said it felt good about the slot business despite a decline of 27% in slot handle at both properties. Slot hold was a little high and table win % was a little light. We think that the Venetian suffered from low win % in the 13% range, while Palazzo experience high win % in the range of 24%. Net/net, gross casino revenues missed our number by $15MM.

We expected operating expenses to be down materially and they actually came in $2MM below our number. While LVS gives very little detail around its cost cuts, we think that fixed costs decreased 12% y-o-y.

Sands Macau

Sands Macau was the only property in LVS’s portfolio that beat our EBITDA expectation. Of course, Oceanus will be a major impediment to this happening again. Our estimate was $50MM, while Sands reported $61M of EBITDA for the quarter. One thing to keep in mind for Sands Macau is that like Venetian Las Vegas, this property was hit pretty hard last year as Venetian Macau ramped and cannibalized some its customer base.

Slot hand grew an impressive 15% y-o-y (2Q08 was down 18% though) and slot hold was high at 8.1%, contributing an extra $2.5MM of EBITDA

Once again Sands reduced its table count, we suspect on the Mass side, by 36 tables sequentially and by 170 tables y-o-y. We estimate that there were 317 tables on average at the Sands... as a reminder, at one point this property had over 700 mass tables. This is certainly one way of reducing costs.

We estimate the fixed costs were down $25MM y-o-y to roughly $30MM. Our best guess is that fixed property expenses will be down to $117MM in 2009 from $190MM in 2008.

Venetian Macau

Despite Sheldon’s commentary on how solid Venetian Macau’s results were, they came in below our revenue and EBITDA estimates. While LVS may want to blame low hold in its rolling chip business, we believe that the low hold on RC was largely offset by high hold on higher margin Mass business.

Once again the number of tables was reduced by 18 sequentially. We suspect the reductions were at Mass level. This property originally opened with over 730 mass tables, and now only has 460.

Mass drop was down 10%, but high hold saved the day. If hold was at the normal 19% level revenues would have been $44MM lower

It was harder to figure out cost reductions at this property, but our best guess is that fixed costs were around $70MM for the quarter, down about $15MM sequentially. We have fixed costs at this property down $60MM y-o-y to $300M.

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